Higher Health Spending Saves Lives

"A typical comparison of a high-spending area and a low-spending one means a 50 percent difference in health care spending intensity...This disparity is associated with a 1.6 percentage-point lower mortality rate among heart emergency patients. Based on that estimate, the additional cost of a statistical life-year-saved is on the order of $50,000."

Health care spending is a major concern in the United States, amounting to over $2 trillion per year or 16 percent of GDP. These figures are expected to increase with the aging of the population and are likely to strain government budgets and private-sector profitability. And, there is controversy over exactly what we are getting for that health care spending.

Among counties or regions within the United States, there are large disparities in spending, yet health outcomes are remarkably similar. One study of Medicare data found that end-of-life spending levels -- a measure of treatment intensity that controls for the health outcome -- are 60 percent higher in high spending areas of the United States than in low spending areas. Yet there is no difference across regions in five-year mortality rates after such health events as heart attacks or hip fractures.

One difficulty that arises when comparing regions is that populations in worse health may receive greater levels of treatment. For example, at the individual level higher spending is strongly associated with higher mortality rates, because more is spent on sicker patients. At the regional level, long-term investments in capital and labor also may reflect the underlying health of the population.

In Returns to Local-Area Health Care Spending: Using Health Shocks to Patients Far From Home (NBER Working Paper No. 13301), author Joseph Doyle compares outcomes of patients who are exposed to different health care systems that were not designed for them: patients who are far from home when a health emergency strikes. These visitors vacation in areas that provide different levels of health care. They may have a health emergency in an area that spends a great deal on patients or in one that tends to spend less. By comparing similar visitors across these locations, Doyle is able to use differences in health outcomes to shed light on the returns to health care spending, at least in emergency situations.

He finds that if the medical emergency occurred in a high-spending area, the patient was significantly more likely to survive. This result comes from analyzing groups of counties with similar lodging prices that are also popular tourist destinations -- areas that are likely to be close substitutes in terms of vacations, and that provide credible variation in health care systems.

In particular, Doyle uses data from hospital discharges in the state of Florida -- one of the most frequently visited states, which also gathers a wealth of data on patient characteristics. A typical comparison of a high-spending area and a low-spending one means a 50 percent difference in health care spending intensity. Doyle finds that this disparity is associated with a 1.6 percentage-point lower mortality rate among heart emergency patients. Based on that estimate, the additional cost of a statistical life-year-saved is on the order of $50,000 -- similar to the estimate from health improvements over time, and well below the typical value of a life-year-saved of $100,000.

Doyle's results also confirm earlier findings of little relationship between spending and mortality among the populations the health care systems are designed to serve. Instead, those who have a serious health emergency far from home are exposed to different health care systems, but they are unlikely to affect the resources available in the systems.

Doyle points out that visitors choose their destinations, and if relatively healthy individuals were to choose high-spending areas, then his main results would reflect these differences. However, his estimates are robust across different types of patients, including those with various income levels, and within groups of destinations that can be characterized as close substitutes. The returns to spending are lower in places where the visitors were more likely to select the destination with the health care system in mind -- this suggests that Doyle's main results may understate the benefits of health care spending.

-- Les Picker

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